China's consumption exacerbating global oil dependence.

In recent months oil prices have repeatedly set record highs in nominal terms. Oil producers have reached their limits, and fears of supply disruptions--from Iraq to Russia to Venezuela--have further lifted prices in a tight and jittery market. But supply is only half of the equation. Oil consumption is now rising rapidly around the world, with the greatest increase in demand coming from China.

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Driven by a dramatic surge in private car ownership and the expansion of heavy industry, China's oil consumption climbed more than 10 percent in 2003, accounting for one-third of the total global increase in demand last year. Just a decade ago, China was a net exporter of oil; today, it relies on imports to meet half its demand. Net imports rose 30 percent in 2003 as China raced past Japan to become the second largest consumer after the United States.

Electricity consumption in China is expected to increase 15 percent this year--compared with 9 percent projected economic growth. Supply cannot keep up, and factories across China have been forced to shut down for lack of power, or to install their own diesel generators--further driving up China's demand for oil. Auto production in China has tripled in the past two years alone, and the number of cars on the nation's roadways is expected to grow five-fold over the next decade. The International Energy Agency (IEA) projects that China's oil imports will double by 2010. Yet, millions of Chinese still lack access to modern energy sources and have never driven a car.

The implications of this growth are enormous. Unlike most industrial powers that rely heavily on oil, China lacks a buffer to help it through supply shocks--raising analysts' fears of panic buying in the international marketplace, which would further drive up prices. Oil remains a critical input to the world's economic engine, and high prices historically have slowed economic growth.

As China becomes increasingly dependent on imported fuel, there is also concern that the country could become a major arms supplier to countries in the Middle East, trading weapons for access to oil. The hunger for oil already influences China's alliances and is increasing competition for resources among major consumers. And if a growing number of analysts are correct in predicting a peak in global oil production within the next decade, not only will rising consumption levels hasten this peak, but China could soon be competing for an ever-larger piece of a shrinking pie.

On the environmental front, if oil and coal account for most of the coming energy demand increase as projected, China's growth will threaten global efforts to address climate change, while worsening air quality across much of Asia. The IEA predicts that China's increase in carbon emissions between 2000 and 2030 will nearly equal the total increase in the industrialized world.